USA Funds University. Tax Transcripts and Verification Requirements

Transcription

1 USA Funds University Tax Transcripts and Verification Requirements 2012 CASFAA Annual Conference Dec. 10, 2012

2 Special Note These materials are for the benefit of financial aid professionals and other campus administrators. They are intended to provide current facts and information and are not intended to be legal advice. These materials contain information related to Federal Title IV student aid programs and have neither been reviewed nor approved by the U.S. Department of Education. You are encouraged to seek your own competent legal counsel in connection with the topics covered in these materials. USA Funds disclaims all responsibility for any claim arising from reliance on the information provided. Copyright 2012 United Student Aid Funds, Inc. All Rights Reserved. Questions regarding the content of this publication should be addressed to USA Funds University, P.O. Box 6028 Indianapolis, IN or by calling (317)

3 Verification Required Verification Items 34 CFR Federal Register, Vol. 76, No. 134, p Dear Colleague Letter GEN When a student's application is selected for verification by the CPS, certain data elements must be documented and validated by the school. The regulations specify that the minimum data elements schools must verify and the acceptable documentation for each data element will be defined by ED on an annual basis and could change from one year to the next. Requirements for each year will be outlined in the Federal Register approximately four to six months prior to the start of each application cycle. On July 13, 2011, the Department informed schools of the FAFSA data elements that must be verified for the award year. The Federal Register and subsequent guidance listed the documentation an applicant must provide to the school to verify the accuracy of each required data element. The required number of data elements ranges from five for non-tax filers to 11 for tax filers FAFSA Information Required to Be Verified Items required for all applicants selected for verification: u Household size. u Number in college. u Child support paid.* u Supplemental Nutrition Assistance Program, commonly known as Food Stamps.* * Information must be verified if reported on the FAFSA. Yes Was or will a federal income tax return be filed? No Additional required verification items: u Adjusted gross income. u Federal income taxes paid. u Untaxed IRA distributions. u Untaxed pensions. u Education credits. u IRA deductions. u Tax exempt interest income. Additional required verification item: u Income earned from work. 1

4 Trainer s Tidbit Program Integrity Questions and Answers Verification www2.ed.gov/policy/highered/reg/hearulemaking/2009/verification.html. For the applicants it selects for verification, an institution is not required to verify any or all of the FAFSA information identified by the Secretary for the award year and it may require verification of other FAFSA information. The institution also may determine what documentation to accept for the applicants it selects for verification, for any of the FAFSA information it has determined must be verified. NOTES 2

5 Acceptable Documentation 34 CFR Federal Register Vol. 76, No. 134, p Dear Colleague Letter GEN Dear Colleague Letter GEN The verification regulations now divide acceptable documentation requirements into four categories: 1. All applicants selected for verification. 2. Tax filers without special circumstances. 3. Tax filers with special circumstances. 4. Non-tax filers. 1. All Applicants Selected for Verification Applicants selected for verification will be expected to document their answers on the FAFSA regarding household size, number in college, child support paid and the receipt of food stamps. Data Elements Acceptable Documentation Completed verification worksheet or signed statement from an applicant (or applicant and parent, if dependent) listing the name and age of each household member and the relationship to the applicant. Household Size Not required when: u Dependent student lists 2 and parent is single, divorced, separated or widowed. u Dependent student lists 3 and parents are married. u Independent student lists 1 and student is single, divorced, separated or widowed. u Independent student lists 2 and student is married. Number in College Child Support Paid Food Stamps (SNAP) Completed verification worksheet or signed statement from an applicant (or applicant and parent, if dependent) listing the name and age of each household member attending an eligible school* at least half time for the award year, and the name(s) of the applicable school(s). u Not required when the number in college is 1. u If the school believes information from the FAFSA or the signed statement is inaccurate, it must obtain a statement from each listed school unless the household member is not yet registered or will attend the applicant s school. Completed verification worksheet or statement signed by the individual who paid support, listing the annual amount paid, the name of the individual who paid support, the child support recipient, and the name of the child (children) for whom support was paid. u If the school believes information is inaccurate, it must obtain documentation such as a copy of a separation agreement/divorce decree showing the annual amount to be paid, a statement from the child support recipient showing the annual amount paid, or copies of canceled checks or money order receipts. Completed verification worksheet or statement signed by the dependent student s parent or the independent student certifying that they, or another member of the household, received Food Stamps in 2010 or u Alternately, the school may choose to require documentation from the applicable Food Stamp issuing agency, rather than a signed statement. * Must be attending a school that is eligible to participate in Title IV programs. 3

6 2. Tax Filers Without Special Circumstances When using FAFSA on the Web, students (and/or parents of dependent students) who indicate they filed federal income tax returns will be encouraged to retrieve their IRS income data to populate the appropriate FAFSA fields. In the Federal Register published July 13, 2011, ED provided a priority order for the type of documentation schools must use to document FAFSA data related to income for tax filers for the award year. u First priority: Unaltered IRS data retrieved by tax filers using FOTW. u Second priority: An IRS tax transcript for 2011, if IRS data was not retrieved or if it was retrieved and then changed. u Third priority: A signed copy of the tax filer s 2011 federal income tax return, but only if the school determines that obtaining an IRS tax transcript is not possible. IRS data retrieved by the tax filer while correcting the FAFSA is considered acceptable documentation, even though it was not retrieved with the initial application. The newly-retrieved data can serve to document the answers on the application instead, and any applicable requests for alternate documentation could be cancelled. Data Element AGI* U.S. Tax Paid* Untaxed IRA Distributions* Untaxed Pensions* Education Credits* IRA Deductions* Tax-Exempt Interest* Acceptable Documentation Each of these data elements may be populated on the FAFSA via the IRS data retrieval tool. If the applicant (and/or the parent, if the applicant is a dependent student): u Used the IRS data retrieval tool and the information is unchanged ( 02 IRS Request Flag), the school need not require additional tax information. u Did not use the IRS data retrieval tool or did use the tool but subsequently changed any of the data, the school must obtain a tax transcript. * Documentation requirements may vary for tax filers with special circumstances. Trainer s Tidbit Tax Data One common area conflicting information arises is through the school s review of an applicant s tax returns. According to the Federal Student Aid Handbook, [Financial aid administrators] must have a fundamental understanding of relevant tax issues that can considerably affect the need analysis (p. AVG-103). ED refers financial aid administrators to specific pages in IRS Publication 17 as a resource for understanding basic tax law and detecting when conflicting tax information affects Title IV eligibility. Financial aid administrators are required to know: u Whether a person was required to file a tax return. u What the correct filing status for a person should be. u That an individual cannot be claimed as an exemption by more than one person. NOTES 4

7 3. Tax Filers With Special Circumstances ED describes certain tax filers as having special circumstances if they: u Filed a joint return and are: Separated, divorced or widowed. Married to someone other than the individual included on the joint return. u Were granted an extension to file. u Cannot obtain a tax transcript by the IRS. Tax Filers Who Filed a Joint Return and Are Separated, Divorced, Widowed or Remarried Tax filers could qualify to file a joint income tax return based on marital status as of December 31 of the tax year and subsequently indicate a different marital status by the time they are applying for federal financial aid. In this case, it is not appropriate to retrieve IRS data. Instead, these tax filers should skip the IRS data retrieval tool, making sure to correctly reflect their income, taxes paid and untaxed income. Documentation When selected for verification, these applicants will be expected to provide a: u Tax transcript listing the tax filer s information for the applicable tax year. u W-2 Forms if the student (and/or the dependent student s parent) no longer is married to the individual on the joint return, for each employment source for the student or dependent student s parent(s) whose income is used to calculate the applicant s Expected Family Contribution. If the individual is self-employed or if a W-2 Form is not available, a school may accept a signed statement of the AGI and taxes paid. The W-2 Forms will serve to document the portion of any earned income which belongs to the tax filer. The school then will be responsible for adjusting the AGI and taxes paid using the documentation received. Adjustment Process Federal Student Aid Handbook, p. AVG-86. Item Documentation Adjustment AGI Taxes Paid W-2 Forms IRS Tax Forms Calculate the individual's AGI using income amounts from W-2 Forms and add that to any other income that can be extracted from the joint return. Interest or dividends paid from joint accounts or joint business income or loss used to calculate the AGI should be assessed at 50 percent. Calculate new taxes paid either using the IRS tax tables (preferred method) or by using a proportional calculation: (Individual AGI / Joint AGI) x Joint taxes paid = New individual taxes paid. NOTES 5

8 Tax Filers Granted an Extension to File Some tax filers may apply to the IRS for an extension of the deadline to file their federal income tax returns. Typically, a six-month extension is requested using IRS Form 4868, though the IRS may approve longer extension periods. If the tax return has not been filed by the time the tax filer is completing the FOTW, no tax data will be available and the tax filer will not be able to use the IRS data retrieval process. Schools cannot delay the verification processing because a tax-filing extension was granted. If an extension is granted, the school must complete verification using alternative documentation: u Copy of Form 4868 or a copy of the IRS approval of the extension beyond the six-month period. u Copy of a W-2 Form for each source of employment received in the base year by the individual granted the extension or a signed statement of Adjusted Gross Income and tax paid if the individual is self-employed. Beginning with the award year, schools have the option of collecting tax data from extension filers once their federal income tax returns have been filed with the IRS. If the school elects to collect tax data, it may be accomplished using the same documentation priority order used for tax filers without special circumstances. Any tax transcripts or tax returns received by the school must be used to re-verify AGI and taxes paid. Tax Filers for Whom a Transcript Cannot be Provided or Located Issue Identity Theft Foreign Tax Returns U.S. Territory or Commonwealth Tax Returns Guidance For victims of identity theft who are selected for verification, if Form was not required, or the tax filer does not have a copy of the form, now the school instead may accept either of the following items: u A signed copy of the filed tax return and a copy of a filed police report. u A signed copy of the filed tax return and a signed statement that the filer was the victim of identity theft that the Internal Revenue Service is investigating. For individuals who filed foreign tax returns and cannot obtain a tax transcript, the school now must collect signed copies of the foreign returns or other information listing similar income and tax information, converted to U.S. dollars. If the individual is not required to file taxes under that nation s process, the school should accept a signed statement certifying income and taxes paid, if any, for the applicable period. If the individual filed a tax return with Puerto Rico, Guam, American Samoa or the Commonwealth of the Northern Mariana Islands, the school now should accept a signed copy of the applicable tax return. If the individual filed a tax return with the Republic of the Marshall Islands, the Republic of Palau or the Federated States of Micronesia (the Freely Associated States), the school should accept a signed copy of the individual s wage and tax statement for each employer, in addition to a signed statement that lists all income and taxes for the tax year. NOTES 6

9 4. Non-Tax Filers When using FOTW, students and parents of dependent students who indicate they will not file federal income tax returns will be required to affirm that they have not filed a federal income tax return and are not required by IRS regulations to do so. If selected for verification, and if they earned any income during 2011, they will be required to provide copies of an IRS Form W-2 from each employer. If a W-2 Form is not available, a signed statement explaining the reason the form is not available, as well as the amount and source of the income, will be acceptable. Data Element Acceptable Documentation Copy of a W-2 Form received in the base year from each source of employment. Income Earned from Work Signed statement certifying the applicant has not filed and is not required to file for the tax year, and the sources and amounts of income earned from work reported on the FAFSA not listed on a W-2 Form. u If a W-2 Form is not available, a signed statement explaining the reason the form is not available and listing the amount and source(s) of income earned from work. NOTES 7

10 IRS Data Retrieval Tool Summary of Changes for the Application Processing System, Dear Colleague Letter GEN Dear Colleague Letter GEN The IRS DRT became available in February 2012, for the FAFSA. The DRT is not a database match with the IRS. Separate tax-filer consent is not required because the data is being retrieved by the tax filer. To be eligible to use the DRT, applicants must have: u A valid Social Security number. u A confirmed FSA PIN. u Filed a federal tax return. u Listed a marital status date on the FAFSA of December 2011 or earlier. For tax filers who indicate they already have completed their income tax returns, the FOTW application now will ask a set of filtering questions. Based on an applicant's response, FOTW may prohibit the use of the DRT: Filtering Questions for a FAFSA Marital Status of Married NOTES 8

11 Filtering Questions for a FAFSA Marital Status of Single, Separated, Divorced or Widowed "No Filtering Criteria Met" If the tax filer does not meet any of the criteria outlined above, the use of the DRT should be available. 9

12 FAFSA Question Numbers For federal income tax filers who are eligible to use the DRT, the following data is available for retrieval and transfer from the IRS to the FAFSA using FOTW: Tax Return Information FAFSA Question Numbers Student Parent Type of tax return filed Adjusted gross income Income tax IRS exemptions Education credits 43a 91a IRA deductions and payments 44b 92b Tax-exempt interest income 44d 92d Untaxed IRA distributions* 44e 92e Untaxed pensions* 44f 92f *Rollovers, which should be excluded on the FAFSA, will not be accurately reflected through the DRT. Trainer s Tidbit FAFSA, Q44i and Q92i. First-Time Homebuyer Tax Credit Line 67 of IRS Form The first-time homebuyer tax credit is not a required verification item but it is considered untaxed income for the award year. This credit cannot be retrieved through the DRT. If the credit appears on tax documentation the school receives, any conflict with FAFSA data must be resolved. Health Savings Accounts Line 25 of IRS Form Applicants must include as untaxed income any tax-free contributions to health savings accounts, if the filer or anyone other than an employer made the contributions. HSA amounts are not retrieved through the DRT. If an amount appears on tax documentation the school receives, any conflict with FAFSA data must be resolved. Making Work Pay Tax Credit The Making Work Pay tax credit expired at the end of the 2010 tax year and was not renewed for NOTES 10

13 Data Retrieval Process FOTW applicants who indicate that they already have completed an IRS income tax return are presented with the opportunity to view their own tax information on file with the IRS and choose whether to transfer the data. Prior to linking to the IRS site, tax filers must provide their FSA PIN. Parents of dependent applicants are asked to select which parent is retrieving data and to provide that person s FSA PIN. NOTES 11

14 FOTW alerts applicants that they are leaving ED s website to access the website provided by the IRS. Any data entered into FOTW up to that point will be saved for later use. Any income-related data saved on FOTW, however, will be replaced with data retrieved from the IRS by the tax filer. The tax filer can choose to cancel the request without retrieving the data at this point, or continue. In the request form to Get My Federal Income Tax Information, some fields will be pre-populated with data from FOTW. Information must be entered for all fields marked with a red asterisk. All data on this form should be entered exactly as it appears on the tax return because it will be matched against IRS records. At this point, the tax filer either can click the Submit button to continue the retrieval process, or Return to FAFSA to cancel the IRS retrieval process. NOTES 12

15 If a successful match is made with records on file with the IRS, available data is retrieved. The DRT now displays Income Earned from Work, although the wages will not transfer to FOTW. The DRT either will direct the applicant to enter the wages as shown for single tax filers or to split them appropriately for married tax filers. Next, the tax filer either may: u Exit the retrieval process by checking the Do Not Transfer My Tax Information and Return to the FAFSA box and clicking the Do Not Transfer button OR u Transfer the data by checking the Transfer My Tax Information into the FAFSA box and clicking the Transfer Now button. Trainer s Tidbit Some tax filers have income earned from work on multiple lines and schedules of the tax return. The following is how the DRT will address those situations: u IRS Form 1040 lines are combined; negative amounts are treated as zero dollars. u Schedule K-1 income is not retrieved by the DRT; the applicant must include this income manually. NOTES 13

16 Data transferred from the IRS will populate the appropriate FAFSA fields. Each field will be labeled Transferred from the IRS. If an applicant makes changes to a field populated through the DRT, a warning message will appear in the FOTW application. The applicant will have the opportunity to retain the changes or cancel. NOTES 14

17 If any data element transferred from the IRS is changed, ALL of the Transferred from the IRS labels will disappear. If the applicant changes the data back to the original amount, the flag will not re-appear. To restore the Transferred from the IRS labels, applicants may re-retrieve the IRS data, but must not alter the information. IRS Request Flags The Institutional Student Information Record contains two flags that indicate the applicant s use of the DRT and whether data was retrieved or altered. For dependent students, a separate code will be provided to report on the parent s data retrieval status. 15

18 To determine whether an application contains unaltered IRS data, look for code 02 in the IRS Request Flag field of the FAA Information section of the ISIR. This is the only status that permits the school to consider the data that was retrieved from the IRS as sufficiently documented, rather than requiring applicants to provide tax transcripts. Schools should continue to review subsequent ISIRs to determine if the Request Flag Value changes on new transactions, which may warrant requesting additional documentation from the applicant Request Flag Values Code Blank Description IRS Data Retrieval Tool not available in the application method utilized by the student (for example, paper FAFSA, EDE, or FAA Access to CPS Online). Not eligible to use the IRS Data Retrieval Tool and was therefore not presented with the option to use it in FAFSA on the Web. Presented with the option to use the IRS Data Retrieval Tool in FAFSA on the Web and elected to use it, but did not transfer IRS data into the FAFSA. IRS data was transferred from the IRS and was not changed by the user prior to submission of an application or correction. IRS data was transferred from the IRS and changed by the user prior to submission of an application or correction. 04 IRS data was transferred from the IRS and then changed by the user on a subsequent transaction. 05 Presented with the option to use the IRS Data Retrieval Tool in FAFSA on the Web, but did not elect to use it. 06 IRS data was transferred from the IRS, but a subsequent change made him or her ineligible to use the IRS Data Retrieval Tool. Provided from ISIR Guide, p Trainer s Tidbit Program Integrity Questions and Answers Verification www2.ed.gov/policy/highered/reg/hearulemaking/2009/verification.html. DOC-Q14. What tax information should an institution use when both the IRS Data Retrieval Tool is used and an IRS Tax Return Transcript is obtained? DOC-A14. We have informed institutions that tax information obtained through the IRS Data Retrieval Tool (DRT) may be considered verified if that information was not subsequently changed after it was transferred from the IRS to the FAFSA. However, an IRS Tax Return Transcript may provide a per computer amount for certain tax information that is different than the amount the tax filer originally reported to the IRS. The "per computer" is an amount that has been modified by the IRS to correct mathematical errors and therefore is more accurate than the amount for the same tax information that was transferred through the IRS DRT. The IRS Tax Return Transcript may also include other tax information that may be different from what was initially reported on the FAFSA but was not part of the tax information transferred through the IRS DRT. Institutions are not required to obtain an IRS Tax Return Transcript to complete verification for individuals who successfully utilized the IRS DRT. If an institution obtains a copy of a tax filer s IRS Tax Return Transcript, any amount(s), including the per computer amount(s), on the transcript that is different from the amount reported on the FAFSA by $25 or more must be corrected on the FAFSA through CPS. However if an institution is required to submit any change through CPS as a result of verification it must submit all changes, including amounts that are below the $25 tolerance. (Sections (f), (a), and (a)(2)) [Guidance issued 09/13/2012]. 16

19 Verification Challenges Dear Colleague Letter GEN Some applicants may experience different challenges due to the changes in the verification regulations and ED s encouragement for applicants to use the DRT. For example FOTW applicants may: u Choose not to access and transfer their federal income information using the DRT. u Find they are ineligible to use the DRT. u Discover the resulting information from the DRT is not accurate. Amended Tax Returns Some tax filers may change or correct the federal income tax return originally filed with the IRS before or after completing the FAFSA. These individuals will not be able to access the amended information through the IRS DRT. Effect of Amending Tax Returns When was the amended tax return filed? Before completing the initial FAFSA After completing the initial FAFSA Tax filer cannot access amended information through the IRS data retrieval process. Tax filer cannot access amended information through the IRS data retrieval process. These individuals are expected to use their own financial data from the amended tax return to complete the FAFSA. These individuals are expected to use their own financial data from the amended tax return to complete the FAFSA. Tax filer must correct the FAFSA to reflect the amended tax data. Is the applicant selected for verification? No Yes Continue to process the application as usual. Alternate documentation is required to complete verification: u A signed copy of the IRS Form 1040X that was filed with the IRS, AND u A signed copy of the original tax return, original tax data on a tax return transcript, Record of Account Transcript, or Return Transcript for Taxpayer. Guidance revised on 10/10/

20 Mismatched Identifying Information If the identifying information submitted by the tax filer when requesting IRS data did not exactly match the information on file with the IRS, the information will not be available for transfer. FOTW applicants are encouraged to have a copy of the tax return available for reference while entering identifying data. In the case of a mismatch, the ISIR will reflect that the IRS data was not retrieved and, if selected for verification, alternate documentation must be requested. Paper FAFSAs Students who complete the paper version of the FAFSA cannot use the DRT on the initial application. The ISIR will reflect that the IRS data could not be retrieved and alternate tax documents will be required to complete verification. They can, however, correct their information by using the DRT through FOTW. Rollovers While the DRT accesses several types of income, the system cannot identify income the tax filer reports as a rollover from one retirement fund to another during the tax year. During data retrieval, the tax filer is cautioned to subtract any rollover amounts for untaxed IRA distributions or untaxed pensions once the information is transferred. Unless the rollover amount is subtracted by the tax filer, the income will be incorrectly overstated on the FAFSA. Once corrected, however, the ISIR will reflect that the IRS data was altered after it was retrieved. If the applicant notifies the school of a rollover, it should obtain alternate tax documents as well as documentation of the rollover to complete verification. Note, however, if the school identifies a difference between ISIR data for these line items and answers on the tax document, this could indicate the existence of a rollover. The school should resolve this conflict by collecting relevant documentation. NOTES 18

21 IRS Tax Transcripts Federal Register, Vol. 76, No. 134, pages Dear Colleague Letter GEN Dear Colleague Letter GEN Program Integrity Questions and Answers Website. Internal Revenue Service Website. Upon request, the IRS provides tax filers with transcripts of their federal income tax returns. Increased reliance on tax transcripts to validate FAFSA information means financial aid administrators need to be familiar with how these documents can be obtained by students and parents, and how to review the information they contain. Typically, transcripts are available for the current and past three years. The IRS makes two types of transcripts available: u Tax Return Transcript: Provides original answers for most line items on the tax return. u Tax Account Transcript: Provides some of the information found on a tax return transcript, along with any adjustments made by the tax filer or the IRS after the original return was filed. Trainer s Tidbit Signature Requirements Dear Colleague Letter GEN According to GEN-11-13, collecting signatures on IRS tax transcripts for is encouraged, but not required. NOTES 19

22 Tax Return Transcript Sample (page 1 of 6) This Product Contains Sensitive Taxpayer Data Request Date: Response Date: Tracking Number: XXXXXXXXXXXX Tax Return Transcript SSN Provided: BBB-BB-BBBB Tax Period Ending: Dec. 31, 2011 The following items reflect the amount as shown on the return (PR), and the amount as adjusted (PC), if applicable. They do not show subsequent activity on the account. NAME(S) SHOWN ON RETURN: LYLE K & JENNIFER M LEE SSN: BBB-BB-BBBB SPOUSE SSN: CCC-CC-CCCC ADDRESS: 123 MAIN STREET SPRINGFIELD, OR FILING STATUS: Married Filing Joint FORM NUMBER: 1040 CYCLE POSTED: RECEIVED DATE: Feb. 15, 2012 REMITTANCE: 0.00 EXEMPTION NUMBER: 5 DEPENDENT 1 NAME CTRL: LEE DEPENDENT 1 SSN: AAA-AA-AAAA DEPENDENT 2 NAME CTRL: LEE DEPENDENT 2 SSN: DDD-DD-DDDD DEPENDENT 3 NAME CTRL: LEE DEPENDENT 3 NAME CTRL: EEE-EE-EEEE DEPENDENT 4 NAME CTRL: DEPENDENT 4 SSN: IDENTITY THEFT PERSONAL ID NUMBER: PREPARER SSN: XXXXX PREPARER EIN: XX-XXXX Income WAGES, SALARIES, TIPS, ETC:... $118, TAXABLE INTEREST INCOME: SCH B:... $ TAX-EXEMPT INTEREST:... $0.00 ORDINARY DIVIDEND INCOME: SCH B:... $0.00 QUALIFIED DIVIDENDS:... $0.00 REFUNDS OF STATE/LOCAL TAXES:... $1, ALIMONY RECEIVED:... $0.00 BUSINESS INCOME OR LOSS (Schedule C):... $0.00 BUSINESS INCOME OR LOSS: SCH C PER COMPUTER:... $0.00 CAPITAL GAIN OR LOSS: (Schedule D):... $37, CAPITAL GAINS OR LOSS: SCH D PER COMPUTER:... $37, OTHER GAINS OR LOSSES: (Form 4797):... $0.00 TOTAL IRA DISTRIBUTIONS:... $0.00 TAXABLE IRA DISTRIBUTIONS:... $0.00 TOTAL PENSIONS AND ANNUITIES:... $4, TOTAL PENSION/ANNUITY AMOUNT:... $0.00 RENT/ROYALTY/PARTNERSHIP/ESTATE (Schedule E):... $0.00 RENT/ROYALTY/PARTNERSHIP/ESTATE (Schedule E) PER COMPUTER:... $0.00 RENT/ROTALTY INCOME/LOSS PER COMPUTER:... $0.00 ESTATE/TRUST INCOME/LOSS PER COMPUTER:... $0.00 PARTNERSHIP/S-CORP INOCME/LOSS PER COMPUTER:... $0.00 FARM INCOME OR LOSS (Schedule F):... $0.00 FARM INCOME OR LOSS (Schedule F) PER COMPUTER:... $0.00 UNEMPLOYMENT COMPENSATION:... $0.00 TOTAL SOCIAL SECURITY BENEFITS:... $

23 Tax Account Transcript Sample (page 1 of 1) This Product Contains Sensitive Taxpayer Data Request Date: Response Date: Tracking Number: XXXXXXXXXXXX Account Transcript FORM NUMBER: 1040 TAX PERIOD: Dec. 31, 2011 TAXPAYER IDENTIFICATION NUMBER: SPOUSE TAXPAYER IDENTIFICATION NUMBER: BBB-BB-BBBB CCC-CC-CCCC LYLE K & JENNIFER M LEE 123 MAIN STREET SPRINGFIELD, OR ANY MINUS SIGN BELOW SIGNIFIES A CREDIT AMOUNT --- ACCOUNT BALANCE: 0.00 ACCRUED INTEREST: 0.00 AS OF: April 11, 2012 ACCRUED PENALTY: 0.00 AS OF: April 11, 2012 ACCOUNT BALANCE PLUS ACCRUALS (this is not a Payoff amount): 0.00 ** INFORMATION FROM THE RETURN OR AS ADJUSTED ** EXEMPTIONS: 05 FILING STATUS: Married Filing Joint ADJUSTED GROSS INCOME: 151, TAXABLE INCOME: 104, TAX PER RETURN: 14, SE TAXABLE INCOME TAXPAYER: 0.00 SE TAXABLE INCOME SPOUSE: 0.00 TOTAL SELF EMPLOYMENT TAX: 0.00 RETURN DUE DATE OR RETURN RECEIVED DATE (WHICHEVER IS LATER) April 15, 2012 PROCESSING DATE March 3, 2012 TRANSACTIONS CODE EXPLANATION OF TRANSACTION CYCLE DATE AMOUNT 150 TAX RETURN FILED $14, W-2 or 1099 withholding $13, Credit to your account $ Credit to your account $2, Refund issued $1, This Product Contains Sensitive Taxpayer Data 21

24 Requesting Tax Transcripts There are several ways tax filers can request a tax transcript, most of which do not involve payment of a fee to the IRS. Some methods take longer for processing than others. In Dear Colleague Letter GEN-11-13, ED recommended three methods in particular to request a tax return transcript. Request Method Where? Tax Transcript Output Document What? How? When? Direct to Third Party? Online Paper Mailed 5-10 days No Telephone (800) Paper Mailed 5-10 days No IRS Form 4506T-EZ -pdf/f4506tez.pdf Paper Mailed 5-10 days Yes Trainer s Tidbit According to the instructions on IRS Form 4506-T, this form may be used to request any of the following documents: u Return Transcript. u Account Transcript. u Record of Account, which is a combination of line item information and later adjustments to the account. u Verification of Nonfiling, which is proof from the IRS that the tax filer did not file a return for the year. u Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcript. NOTES 22

25 Corrections 34 CFR Documentation received for verification purposes may indicate that a correction is required to the applicant s FAFSA data. In general, new regulations require all corrections to be submitted for applicants receiving subsidized student financial assistance. Schools verifying students receiving only non-need-based federal aid also are encouraged, but not required, to submit corrections. All awards must be based on the revised eligibility. IRS Data Retrieval and FOTW Corrections 34 CFR (a)(2). Dear Colleague Letter GEN Applicants may correct FAFSA data using the IRS Data Retrieval Tool in lieu of submitting alternate documentation, such as a tax transcript. If the school previously requested alternate documentation, the unaltered data can serve to document the answers on the application instead and the request for alternate documentation could be cancelled. If documentation is inadvertently received, however, it still must be reviewed for conflicting information. Tolerance Option 34 CFR ED allows schools the option to exercise tolerance for any verification changes that do not significantly affect student aid eligibility. The tolerance limit for is $25 for each dollar-related item. If the difference between an item s original and correct dollar amount is $25 or more, or if any non-dollar items must be changed, ALL information must be corrected. If tolerance is not exceeded for any item, schools may disburse student aid based on the application data, without recalculating the EFC or submitting corrections. Schools are not required to use the tolerance option and may instead make necessary corrections for all verified applications. Trainer s Tidbit Federal Register, Vol. 75, No. 209, p Regulations allow schools to update the applicants marital status if the change reflects a more accurate picture of their ability to pay or to address an inequity. This can be done even if the applicant s dependency status changes or the applicant is NOT selected for verification. A school may choose to establish a cut-off date after which no further updates to marital status will be made. In such cases where an FAA chooses to update a student's dependency status as a result of a change in the student's marital status regardless of whether the student is being verified, all of the information must be consistent with the change to the marital status. This includes income (either adding the spouse's income or deducting a former spouse's income) as well as household size and number in college. NOTES 23

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27 Trainer s Toolkit The Trainer s Toolkit is a listing of terms, web sites, and reference material directly related to Federal Verification. Terms, Acronyms and Abbreviations Adjusted Gross Income AGI For federal income tax purposes, gross income less adjustments (for example, IRA deductible contributions and self-employment health insurance deductions) but before standard or itemized deductions and personal exemptions. Award Year The period between July 1 of one calendar year and June 30 of the following calendar year. Central Processing System CPS An ED contractor that processes Free Application for Federal Student Aid data. The CPS receives FAFSA information, performs data matches with certain federal databases such as the National Student Loan Data System, Internal Revenue Service and the U.S. Department of Homeland Security, calculates the student's Expected Family Contribution, selects certain applicants for verification, determines if there is a database match error (C Code) and sends the Student Aid Report to the student and the Institutional Student Information Report to the school. Code of Federal Regulations CFR The collection of federal regulations written and published by the U.S. government. The U.S. Department of Education's regulations are codified in Title 34. Conflicting Information Information held by any of the school s offices that may affect a student s eligibility for Title IV aid and that conflicts with other information obtained about the student. A school must have an internal system to identify conflicting information that would affect a student s eligibility, regardless of the source or whether the student is selected for verification. The school must resolve all conflicting information and discrepancies before disbursing Title IV funds. If the school discovers discrepancies after disbursing funds, it must reconcile the conflicting information and take appropriate action under the specific program requirements. Dear Colleague Letters DCL ED-distributed letters to schools, lenders, servicers and guarantors that provide interpretive policy guidance about the federal student aid programs. Direct Loan A federal program, also called the William D. Ford Federal Direct Loan Program, through which the U.S. Government provides four types of education loans to student and parent borrowers: Subsidized and unsubsidized Stafford Loans for students, PLUS loans for parents and graduate students, and consolidation loans for all borrowers. Documentation A written or printed paper, a supporting reference or an electronic record that can be used to furnish evidence, proof or information. Expected Family Contribution EFC The Expected Family Contribution is a measure of how much a student and the student's spouse or family is expected to contribute toward the student's Cost of Attendance. The federal need-analysis methodology must be used to calculate the EFC. The EFC is not the amount of money that a student or student's family must provide. Rather, the EFC is an index used to determine how much financial aid a student will receive at a particular school. FAA Access to CPS Online Web tool that financial aid administrators use to input application data, view student information, make corrections, check batch status and request PINs for students. 25

28 FAFSA on the Web FOTW The electronic online version of the Free Application for Federal Student Aid. Federal Register FR A federal government publication, published each weekday (except federal holidays), that lists regulations, regulatory amendments, notices, notices of updated materials or forms in the development process, and proposed regulatory changes for all federal executive agencies. Final Regulations (Final Rule) Federal program rules, which are published in the Federal Register. Final regulations published under Title IV of the HEA are effective based on the statutory master calendar unless otherwise indicated. Free Application for Federal Student Aid FAFSA The form that students and parents of dependent students must complete annually to apply for Title IV assistance, including Pell Grants, Stafford loans, and PLUS loans. A student and parents of a dependent student must include financial information about their household so that the Expected Family Contribution can be calculated. Higher Education Act of 1965, as Amended HEA The federal law that authorizes most of the programs and activities that assist and enable students to enter and succeed in postsecondary education. The primary focus of the HEA is student aid, in the form of grants, loans and work-study assistance. Income Tax Independent Student A student who meets one or more of the following criteria: An individual who is at least 24 years old by Dec. 31 of the award year; is an orphan or ward of the court; is serving on active duty in the U.S. Armed Forces for purposes other than training; is a veteran of the U.S. Armed Forces; is a graduate or professional student; is a married person; is an individual with legal dependents other than a spouse; is an individual who is or was, immediately prior to attaining the age of majority, an emancipated minor or in legal guardianship as determined by a court in the student's state of legal residence; is a student for whom the school s financial aid administrator determines and documents the student's independent status based on the administrator's professional judgment of the student's unusual circumstances. Institutional Student Information Record ISIR An electronic record provided to the school by the Central Processing System. The ISIR includes information provided by a student and parents on the Free Application for Federal Student Aid, the student s Expected Family Contribution and the results of federal database matches. Internal Revenue Service IRS The federal agency responsible for administering and enforcing the U.S. Treasury Department's revenue laws, through the assessment and collection of taxes, determination of pension plan qualification and related activities. IRS Data Retrieval The IRS Data Retrieval tool allows a Free Application for Federal Student Aid on the Web applicant to request and retrieve income and tax data from the IRS. The retrieved data can be transferred to FAFSA on the Web. IRS Form 1040 (1040A and 1040EZ) The basic form that is used by taxpayers to file their income tax returns. A tax levied on the income of an individual or business. 26

29 IRS Form W-2 A federal wage and tax statement showing: u Total earnings. u Federal state and municipal taxes withheld. u FICA taxes. u Various other deductions including contributions to retirement accounts, unemployment insurance and health insurance. Legislation Laws proposed by Congress and signed by the president. Legislation proposes to authorize or reauthorize programs or provides spending limits for existing programs. When the legislation is signed, it becomes law, sometimes referred to as statute. Regulation Developed by ED, to provide instruction on how to follow the laws. Social Security Number SSN The nine-digit number assigned to individuals by the Social Security Administration. The SSN is used as an identifier for tracking the loan account(s), skip tracing, and reporting to the U.S. Department of Education. Subsidized Loan A loan eligible in whole or in part for interest benefits paid by the federal government. The federal government pays the interest that accrues on subsidized loans during the student's in-school, grace, authorized deferment, and (if applicable) post-deferment grace periods, if the loan meets certain eligibility requirements. If the borrower chooses an Income-Based Repayment option and otherwise qualifies, interest benefits may continue for a portion of the repayment period. Subsidized Student Financial Assistance Programs Title IV programs for which eligibility is determined on the basis of an applicant's Expected Family Contribution. These programs include the Federal Pell Grant, Federal Supplemental Educational Opportunity Grant, Federal Work-Study, Federal Perkins loan, and Direct Subsidized loan programs. Title IV Student Financial Aid Federal student financial aid programs for students attending postsecondary institutions. These programs are authorized under Title IV of the Higher Education Act of 1965, as amended, and administered by the Department of Education. They include Federal Pell Grants, Teacher Education Assistance for College and Higher Education Grants, Federal Supplemental Educational Opportunity Grants, Federal Work-Study, Federal Perkins Loans, Federal Stafford loans and Federal PLUS loans. Tolerance (Verification) ED allows schools the option to exercise tolerance for any verification changes that do not significantly affect student aid eligibility. Effective July 1, 2012, all dollar-related changes must be made if any individual item changes by $25 or more. If non-dollar-related items must be altered, tolerance may not be used. Unsubsidized Student Financial Assistance Programs Title IV programs for which eligibility is not based on an applicant's Expected Family Contribution. These programs include the Teacher Education Assistance for College and Higher Education Grant, Direct unsubsidized loan, and Direct PLUS loan programs. U.S. Department of Education ED The U.S. Department of Education is the government agency that administers federal student financial aid programs, including the Federal Pell Grant, the Teacher Education Assistance for College and Higher Education Grant, the Federal Work-Study Program, the Federal Perkins Loan Program, the Federal Family Education Loan Program and the Federal Direct Loan Program. Verification A school s procedure for confirming the accuracy of information reported by the student on the Free Application for Federal Student Aid. Verification may include requesting a copy of tax documents from the student and, if applicable, the student's parents. 27

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31 References, Resources and Websites Federal Legislation or Regulations Federal Register Free Application for Federal Student Aid (FAFSA); Information To Be Verified for the Award Year. 76 FR July 13, Federal Register Program Integrity Issues; Final Rule. 75 FR Oct. 29, U.S. Department of Education Program Integrity Questions and Answers DOC-A2 (revised). DOC-A14. Guidance issued Sept. 13, Electronic Announcement Subject: Program Integrity Questions and Answers (Q&A) Web Site Update. Sept. 25, Electronic Announcement Subject: Limited Circumstances When a Signed Copy of a Tax Return or Other Documentation is Acceptable for Completing Verification. Aug. 21, Electronic Announcement Subject: Program Integrity Questions and Answers (Q&A) Website Update-Verification. June 28, Electronic Announcement Subject: Sample Verification Worksheets. Feb. 3, Dear Colleague Letter GEN Subject: Acceptable Documentation for Verification. April 16, Dear Colleague Letter GEN Subject: Award Year: FAFSA Information to be Verified, and Acceptable Documentation. July 13, Dear Colleague Letter GEN Subject: Enhancements to the FAFSA-IRS Data Retrieval Process. Feb. 23,

32 Dear Colleague Letter GEN Subject: The Higher Education Opportunity Act. Dec. 31, Federal Student Aid Handbook Application and Verification Guide. Chapter 4: Verification, Updates, and Corrections. Summary of Changes for the Application Processing System, Completing the FAFSA Free Application for Federal Student Aid FAFSA on the Web ISIR Guide USA Funds USA Funds Ask Policy SM USA Funds Ask Policy SM is a resource for schools and lenders who have questions about specific policies or other issues related to the full range of Title IV federal student aid. Verification Resources Verification resources to help schools comply with federal regulations for verifying students Free Application for Federal Student Aid information. Policy and Training Fact Sheets Verification Requirements for u Verification and Unsubsidized Student Financial Assistance Programs. u Making Changes to FAFSA Data. u Verification Documentation Requirements for Tax Filers. u Verification Documentation Requirements for Non-Tax Filers. u Verification Checklist for u 2011 Federal Tax Return: Eligible to File a 1040A/EZ. Verification Requirements for Verification Checklist for Other Resources Internal Revenue Service Publication 17: Your Federal Income Tax (For Individuals). Form W-2. Form 1099-R. 30